Waqf efficiency: CRS, VRS and malmquist total factor productivity index via data envelopment analysis (DEA)

Abstract

Waqf or Islamic endowment is established from the notion of religious and economic duty of a Muslim brother towards his worldly affairs and life hereafter. A stronger Waqf system would not only complete the equation for a comprehensive Islamic financial system that supports a more equitable distribution of wealth to ensure justice, but would also become the user of the Islamic financial services particularly in the management and investment of the Waqf funds. This study aimed to measure efficiency scores on two states of Kelantan and Penang that managed Waqf funds by its State Islamic Religion Councils (SIRCs). Efficiency can best be measured by Data Envelopment Analysis (DEA). In measuring the technical efficiency score of each state, we need to have information on the input and output of their operation by which we can compute a dynamic analysis according to the consecutive years begin at 2008 to 2010. From the results, we also compare between both scales of analysis in its constant return to scale (CRS) and variable return to scale (VRS) in order to evaluate its impact on the size of the firm towards its efficiency scores. In VRS DEA analysis, we can see whether the scale operation increases return to scale, decreases return to scale or remains stagnant. Malmquist index in DEA analysis was used to compare between the two states precisely. The result that we run using Data Envelopment Analysis (DEA) has shown only one state, namely Penang state, that operated at the full score (the benchmark) of efficiency, whereas Kelantan is far from fully efficient.